Industry Spotlight: James Crowe on Level 3’s Local Push

It has now been one year since Level 3 began its 'go local' initiative, decentralizing resources and decision making power in order to better address the mid-market enterprise segment and finally unlock the value in their 27,000 route mile metro footprint. The company is now seeing the benefits of this new approach materialize as this portion of its business has stabilized and appears ready at last to contribute to the company's growth. Is this the final piece of the puzzle that the company needs to put the past few years behind them at last? Telecom Ramblings had the opportunity recently to talk with Level 3's CEO James Crowe:

TR: Qualitatively, what responsibilities have been moved out from the center? How much more autonomy does the local general manager have than in the past?

JC: The responsibilities that were moved to a more localized model include the hiring of a General Manager and the alignment of Sales, Sales Engineering, Provisioning, Customer Care and Field Operations along a geographic axis. The goal is to better serve those enterprises that make the decision to purchase locally or regionally.

TR: How did you choose which markets to focus on and how to group them?

JC: We choose locations that were smaller to mid-size and where we could leverage our existing on net buildings, fiber plant reach, and low cost off-net access network. After the success of the first group of converted territories, we moved into additional locations where we have existing network assets.

TR: During the Q1/10 earnings call, the local markets initiative was described as substantially complete. Does that mean you have extended it to all the intended markets, or that the structure of the decentralization has been finalized?

JC: During the first quarter 2010 earnings call we mentioned that we have converted to a localized model in substantially all of our targeted territories. In the future, we may choose to add additional markets if we expand our network to additional areas.

TR: What determines the success or failure of this initiative in each market?

JC: As always, providing an excellent customer experience is very important to us. Combined with increased sales and revenue growth, that would mean success.

TR: Should having vibrant regional markets and distributed local focus help your wholesale and content groups better leverage your metro footprint as well?

JC: Our wholesale group has been utilizing our metro footprint for many years. However, we do think additional local awareness will be useful in both assessing network expansion opportunities and detecting additional opportunities to better serve our wholesale customers.

TR: Prior to this initiative, did the lack of local knowledge and decision-making power contribute to the challenges faced by the wholesale group over the past year or two as well?

JC: No, the challenges that faced our Wholesale group in 2009 were mainly from the difficult economy and deferral of purchases by large customers.

TR: How does Level 3's improved local presence affect its approach to Fiber-to-the-Tower opportunities? Have you seen more tower activity in these markets?

JC: Fiber to the tower opportunities generally fall under our Wholesale Group. That said, with our additional local presence and an expansion of our metro footprint we will likely have the ability to reach a greater number of towers. However, our overall strategy is to continue adding many types of high bandwidth locations to our network, not just towers.

TR: M&A activity in the metro sector has increased thus far in 2010. Has Level 3's experience with such assets since buying Progress, Telcove, Looking Glass, and ICG in 2006 changed the way it views such purchases?

JC: These acquisitions were designed to significantly increase the amount of metro facilities that Level 3 owned to strengthen our end-to-end service offerings. The benefit of owning metro facilities is still apparent, and we believe that further consolidation is probable. We expect to be an active participant.

Join the Discussion!

17 Comments So Far

This man is in a perpetual state of denial, if not the fact that he’s a sophisticated charlatan with an engineer’s degree from RPI who believes he can pull the wool over the eyes of those less educated.

He talks about “value destruction” via acquisitions as if the prior multi billion dollar blunders on his watch never occurred!

To BILK a CASH BONUS under the disguise that important “customer satisfaction” metrics are now being met, while they were utterly destroyed due to his past “toe stubbing,” is quite disrespectful to all underlying owners regardless of their status in share count or corresponding percentage stakes.

I listened to the Shareholder meeting and I thought Crowe made some interesting comments.ie. The acquisitions in 05,06 were lvlt ‘shooting itself in the foot’. The operational integration was bad!
Questions about Akamai generating great shareholder value brought his retort that they are doing a great job with software but that lvlt was all about ‘networks’ and that in the long run lvlt would build shareholder value because we are still in the early innings of a big demand push for bandwidth.
Some questions were asked about Churn but no one got to the ‘price’ issue. Will the supply/demand equation ever favor the broadband owner??. lvlt did a big brochure for shareholders (07) that trumpeted the nascent buildup of HD and how that would drive demand. Well, 3 years later, wireless is booming, HD is booming and 3D is on deck but the supply/demand equation still has soft pricing. So, my question is….when the demand finally force pricing power to the supplier?
Thanks for your comments.
Bill A

For many years now, less insightful owners have been falsely led to believe that the “inflexion point” was practically around the corner with “Breaking Away(2002 Annual Report)” as an illustrative point for this case.

We saw Mr. Buffett’s common stock escapade at about that time right before he FLIPPED OUT just one year later as a result of DOUBLING his investment while pumping up the market with fine talk about the quality of Messrs Scott and Crowe.

Recently, there was a great article quoting a (3) executive telling service providers that they have to invest in more operational efficiencies(opex) since the smaller electronics being used for delivering twice as much bandwidth(capex) is being trumped by power and storage constraints.

Whether this makes colo and data hosting owners a more valuable piece of the equation-(3) has an embedded real estate story inside of it too-or acts as a catalyst for a switch towards more bandwidth consumption in positioning a provider to deliver more bits according to the power grid sucking sound, a sucking which would require the same energy output/expense across any given venue irrespective of the more efficient electronics; still remains to be seen.

Either way, it’s obvious that one can’t look towards (3) management based upon history for these answers. They seem to know as little as you or I except for knowing how to effect the policy decisions of their COMPENSATION COMMITTEES if we’re to be looking anywhere for guidance as to when such a shift takes place!

Yesterday, for example, we heard (3)’s COMPENSATION Chairman, Mr. Jaros, in a most peculiar, quivering voice tell us that, they’re tying this year’s bonus plan for Crowe, etal, once again, to customer satisfaction principles at 70 percent of the weight VERSUS SALES!

It continues to be my claim that, (3) is intent on paying its bondholders USURY RATES in certain direct cases, while they play the waiting game inclusive of various unknowns with respect to the absolute necessity of a SHIFT in customers purchasing significant amounts of bandwidth without the idea of carving it up with the latest and greatest “electronics” from a “cost standpoint.”

Now, if you’d like a little Kool-Aide with your lunch, pointing towards this shift in making a customer more likely to purchase GOBS of BANDWIDTH instead of electronics to extend limited bandwidth in the equation, maybe watching CSCO FLOUNDER most recently(post earnings report) is a harbinger of such a phenomenon taking place! 🙂

I think we are talking about wholesale pricing which right now has macro headwinds and, because of private equity (capital return seeking) competition on “hot” routes, *excess* supply issues.

Take comfort that we, apparently, have solid unit growth, the most important aspect of the business economics in a tough environment.

“when (will) the demand finally force pricing power to the supplier?” The Chairman’s strategy and his major backers – SEAM are value-oriented (they are taking a long-term view). So, timing is left as an exercise for traders.

Tom

P.S. If you think about it, there really has to be somewhat of a disconnect between investor relations marketing materials and *current* business tactics and conditions. Do we want to telegraph, in excruciatingly accurate *detail*, where we are and how we plan to use our capabilities to get to industry supremacy?

Who else is doing so? I have no idea how XO thinks they are viable or will continue in operation… how many doctor’s offices can they sign-up?

Yes, it dovetails with yesterday’s ASM, but there are bits and pieces embedded in your interview, specifically, with his emphasis on “customer experience.”

Let’s teach this RPI man and his crony board members the basics of business.

You can’t have a “customer experience” without first having a SALE! Sales that count as dollars, and not ones that are peer trafficking measuring your size to the largest competitors in the marketplace, while others RIDE FREE on our BEHINDS!

It’s the lack of SALES under his entire tenure which continues to kill common owners in this name!

He has out served his use and purpose, while under serving his owners, and taken too much “compensations” for such under-performance, so that, I’M COMPLAINING with further emphasis to his comments yesterday!

If he wanted to admit those acquisition debacles as being necessary to position the company properly knowing full well in advance it was going to be the cluster F*** it remains, I’d respect him more.

I have no respect for this man. He’s a wounded lion who needs to retire to the savanna in the Jungle with that other loser, O’Hara! IMO

– not sure JC’s answer “…the challenges that faced our Wholesale group in 2009 were mainly from the difficult economy and deferral of purchases by large customers.” really rings true in light of how your questions brought out his other answers showing all of the benefits of the local market operations initiative.

– only question I can think of to add would have been something about helping future M&A integration but I think I know what the answer is… it’s part of TTID.

Questions about Akamai generating great shareholder value brought his retort that they are doing a great job with software but that lvlt was all about ‘networks’ and that in the long run lvlt would build shareholder value because we are still in the early innings of a big demand push for bandwidth.

Yes, a fine gentleman from Omaha with a unique sense of humor originally asked Crowe about Buffett “moats,” a word that Crowe didn’t understand initially so that he asked for clarification. The man then referenced the “alligators” which are included in certain moats, as if (3)’s were filled with them protecting its castle.

Then again, since he included concerns while referencing AKAMAI during his comment period, one could deduce that he meant (3) is running into ALLIGATORS while attempting to finally, once and for all, break down the GATES of the TELECOM MONOPOLISTS’ CASTLES!

That unassuming, interesting gentleman also referenced the stellar reputation of Walter Scott as one of the important reasons he invested in this cursed name.

Crowe chose to skip any reference to AKAMAI in his response to the gentleman from Omaha, which made me livid. Somewhat miraculously, Crowe was able to attach and respond to that inquiry by including it in a different question by another owner who followed the nice Omaha man.

In the final analysis, without quoting Crimi’s horse racing talk, Crowe chose to state that, their net worths, as least the disposable income portions, are fully on the line against and in disagreement with AKAMAI!

Even if it becomes “us,” here’s what Crowe and his crew have caused (3) share owners to ponder while they get paid handsomely for jobs poorly done, and incumbent shareholder equity remains DECIMATED.

Early innings is another cute description like when he talks about percentages being 10, 20, or 30, or his salary, which for some stupid reason he doesn’t know exactly, like 800 or 850K! Crowe doesn’t count his money, it seems! Does he know how many homes he owns?

But if we’re in the early innings, is it the first, second or third? Let’s use third because Crowe won’t say, I guess, and I want to be more optimistic.

If it has taken nine years since the network was built to get to the third inning, then just think, there are only eighteen years left for this company to reach some level of greatness. In sum, that would have been thirty years from when Gates gave them this silly idea and they began launching it in 1998.

More than likely, that fine gentleman from Omaha will be dead as will some others here, maybe even Crowe, maybe even you or I.

Apparently “carlk” only agrees with himself. When I recently pointed out that, despite it’s perpetual promise, L3 had too much debt, not enough enterprise sales and botched M&A integration I got called names. But today, we all agree on too much debt and bad integration (even Jim crow sees this one). As for enterprise sales, we can try to read the tea leaves as to what they bought, botched, retained or originated, but the punchline is: Not too much. ATT and VZB own the space, Q and TW are credible and L3 remains “not present”.

This guy never gets any better –
– if further consolidation is only “probable”, then based on the past 12 years such action will not happen in a positive way for the company investors
– AND, if we are to only expect to be an “active participant” in such action then we are certainly doomed to failure
– Is there any positive future for the shareholders or are we to assume that we will never get any growth in our investment nor will we get our investment back
– we should all have gotten out with Buffett?

You and others seem to have forgotten what their true “moat” is and remains going forward.

“Money is NEVER a problem for (3).” James Q. Crowe circa 2002.

The price and terms greatly inure to the bond holders who dominate this company in one form or the other.

The terms for common owners like those older men from Omaha who have mistakenly followed Buffett and Scott, are more akin to an early twentieth century bucket shop, where you put your ONE DOLLAR in, and it WIPES you OUT by STOCK DILUTION rather than the dubious brokers of that period who wiped their suckers out with 25 percent fees as part of that OFF TRACK BETTING PARLOR system.

(3) will “lather, rinse and repeat,” while pricing services under the competitions cost, until they eliminate these vestigial organs from the planet.

Just eighteen more years to go! I would not want to own a telecom dinosaur in such an environment where exponential change is now taking place in their final growth frontier, that being “wireless.”

To know that Jim Crowe would be yapping his large yapper about long term share owners with names like Longleaf and Fairfax willing to wait for him to turn vision into reality as though they’re some type of patient, masochistic investors without a STICK, all while they suck usury payments at fifteen percent interest with focus on the $400M tranche only, at the same time this represents 12 percent of the more than $500M interest this company pays per annum for the “right to stay afloat,” in conjunction with the fact that their KICKERS in stock represents another 15 percent of the whole company(222M shares) when they ever decide to convert, is another SLAP to the faces of the fine Omaha men who wasted their time to visit Jim Crowe in CO last week.

I’m surprised someone has punched that man square in his nose yet!

In the mean time, Sprint is on a tear today, and one can only “speculate” that Crowe gets taken out in favor Dan, I can, turn my DOG AROUND! IMO